Senate Property Tax Subcommittee Unveils Recommendations

May 2, 2022

The omnibus tax bill will be heard and amended early this week and includes several provisions of interest to cities.

On May 1, the Senate Property Tax Subcommittee unveiled its recommendations to the Senate version of the omnibus tax bill. The amendment to the bill SF 3706, authored by the Subcommittee Chair Sen. Bill Weber (R-Luverne), will be considered, amended, and approved early this week and eventually merged into the first Senate Tax Bill, SF 3692.

Note that the Property Tax Subcommittee language does not include any changes to the Local Government Aid program, the construction sales tax refund process, or local sales tax requests from cities seeking authority this year. Those bills were heard in the full Senate Tax Committee and a decision on inclusion of those provisions will likely occur as an amendment to the existing SF 3692.

Watch for updates on the actions of the Senate Property Tax Subcommittee in the May 9 issue of the Cities Bulletin.

Amendment provisions of interest to cities

The draft Senate Property Tax Subcommittee amendment includes several provisions of interest to cities as summarized here.

  • 4d low-income rental property class rate reduction and transition aid. The draft amendment would modify the classification rate for property classified as 4d low-income rental property be reduced from the current .75% on the value up to $100,000 and .25% on the value above $100,000 to a flat .25% on the entire value of the property. The League has raised concerns that the change would shift taxes from 4d property to other homes, apartments, and businesses. The transition aid is available to affected jurisdictions where class 4d property exceeds 2% of the total net tax capacity of the city and is effective for taxes payable in 2024 and 2025. The aid is projected to cost $810,000 per year. The class rate reduction would be effective for taxes payable in 2024 and beyond.
  • Affordable housing market value exclusion. The draft amendment would establish a new affordable housing program that would provide a 50% market value exclusion for new properties that meet specific affordable housing criteria. The League suggested that the program be modified to be scalable to permit projects to reach affordable housing goals based on the provided exclusion. The Senate bill does not offer any scalability to meet affordable housing targets. The new exclusion would be effective for assessment year 2023 and taxes payable in 2024.
  • Homestead market value exclusion changes. The draft amendment would increase the current homestead market value exclusion, which provides qualifying homeowners with a tax break, by approximately 25% compared to current law. Under the amendment, the homestead market value exclusion is equal to 40% of the home’s market value up to $95,000 (currently $76,000). The exclusion would phase-down to zero for homes valued at $517,200 (currently $413,800). The increase in the exclusion is effective for taxes payable in 2024 and beyond.
  • State general property tax levy and phase-out. The draft amendment would provide business and seasonal recreational (cabin) properties with a tax break from the current state property tax levy by phasing in a reduction in the total state levy. The reduction would begin with taxes payable in 2023 with a reduction of $9.3 million. The state general levy would be frozen at the 2023 level for 2024 and Beginning with taxes payable in 2026, the total state general levy would be reduced by $75 million per year until the state general levy is fully phased-out in 2035.
  • Targeting property tax refund. The draft amendment would increase the state-paid property tax targeting program beginning in 2023 by reducing the qualifying increase threshold from 12% to 10% and increasing the refund maximum from $1,000 to $2,000. The change, which is effective for taxes payable in 2023 and beyond, is projected to increase the annual state cost for the program by $4.3 million.
  • Electric generation facility decommissioning transition aid. The draft amendment would establish a transition aid program for cities that experience the decommissioning of an electric generating power plant. The aid would offset tax increases to other properties that would result from the facility being devalued and the shift in property taxes that would otherwise occur. The program would be gradually phased The program is expected to cost $5.2 million per year and would be effective for taxes payable in 2024 and beyond.
  • Local Government Aid penalty forgiveness. The draft amendment would provide Local Government Aid penalty forgiveness for the cities of Roosevelt, Bena, Boy River, Echo, and Morton if the cities comply with the financial reporting requirements with the Office of the State Auditor.
  • Tax Increment Financing clarification changes. The draft amendment includes the tax increment financing clarifications develop with the Office of the State Auditor and city, county, and school district representatives. The amendment also includes special TIF adjustments for the cities of Savage, Shakopee, and Woodbury.

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